The Real Cost of Healthcare In Retirement How Advisers Are Using This Information To Build Their Practice

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1 The Real Cost of Healthcare In Retirement How Advisers Are Using This Information To Build Their Practice RIIA VLC Webinar November 6, 2013 Copyright 2013 HealthView Services

2 Boomers View Of Retirement Requires A New Way of Thinking Key Retirement Decision Points Working Social Security Medicare Long- Term Care

3 RMJ Themes Reinforce The Need For Planning Help In These Areas This study shows that two of the most important decisions that Americans make are when to retire and when to claim Social Security. Rappaport, Bajtelsmit, Foster Pre-retirees are concerned about health care costs and long-term care costs in retirement but, very often, are not effectively dealing with this issue. There appears to us to be a big gap in financial planning processes Greenwald & Ayers 3

4 And The Adviser s Need For New Tools Many advisers feel less capable discussing Social Security, health care, and elder care. These are also key topics for attracting new clients. Gallant and Schneider, RMJ Summer

5 And New Guidelines For Minimizing Risk and Optimizing Benefits* Personalized plans (not averages) More accurate life expectancy projections Refined inflation rates Delaying retirement Scenario planning for shocks (such as sudden illness, death, divorce) Addressing long-term care * Source: Summer 2013 RMJ Article entitled New Insights on Measurement of Benefit Adequacy 5

6 Many Tools and Information Are Available, But Provide Only Pieces

7 And Most Are Using Averages 7

8 Advisers Are Now Able To Address All of These Decision Points In One Place

9 Tools For Scenario Planning, Training and Marketing Materials All in One Place 9

10 HOW ADVISERS ARE USING HEALTHCARE COSTS TO BUILD THEIR PRACTICE 10

11 They re Creating Highly Personalized Healthcare Plans Carl and Sally Johnson Age: Both 55 yrs. Health Condition: Healthy Life expectancy: 86 and 89 Will Retire in Vermont Retirement Income: <$170,000 Planned Retirement Age: 65 Standard Healthcare Coverage 11

12 They re Producing Very Accurate Life Expectancies Using Health Conditions 12

13 They re Helping Clients Choose The Right Healthcare Coverage Medicare Medicare Advantage (Part C) Part A: Hospitalization Part B: Doctors, Tests Part D: Prescription Drugs MediGap: Co-Pays, Deductibles Add-On No 13

14 Result Is Very Precise Healthcare Costs In Retirement Based on 50 million+ claims per year Creates precise individual calculations based on age, gender, health conditions, State, selected coverage Actuarial projections from experts in Healthcare cost modeling 14

15 And Reliable Healthcare Forecasts Based On Refined Inflation Rates Carl and Sally s Healthcare Costs Healthcare inflation rates on medical premiums are 5%-6%, on RX are 10% -15%, but declining 20.0% 15.0% Inflation Trends On Medicare Premiums 10.0% 5.0% 0.0% Part B:Docs/Tests Part D: RX MediGap Dental 15

16 They re Also Producing Personalized Social Security Strategies and Forecasts Social Security Strategies Available to Married Couples 16

17 They re Bringing It All Together To Develop A Feasible Action Plan Total Healthcare Costs: $670,058 Healthcare Funding Sources $230,351 $71,992 $65,350 $135,408 $38,196 17

18 HOW ADVISERS ARE HELPING CLIENTS REDUCE HEALTHCARE COSTS 18

19 Consumers Have An Intuitive Concern About Healthcare Costs, But Don t Really Know What They re Facing Part A is free Part B is $104.90/mo. Part D is high, but donut hole is closing.. So what s the problem? They re Right Premiums In Year 1 Are About the Same As When They Were Employed BUT Premiums Healthcare Costs Pre-Retiree Age 64 (2013) Retiree Age 65 (2013) Part B; Medical Part D: Rx Dental Total Premiums $1,465 $286 $305 $2,056 $1,259 $506 $0 $1,765 19

20 Advisers Are Showing Them That Medicare Covers Less Than 50% of The Costs Medicare Does Not Cover: Dental Hearing Vision Podiatry Healthcare Costs Retiree Age 65 (2013) Part B; Medical Premiums Part D: Rx Dental Total Premiums Hosp Doctors/ Tests Cost-Sharing (Out-of-Pocket) Rx Dental Hearing Svc Vision Total OOP's Total Costs $1,259 $506 $0 $1,765 $248 $1,121 $385 $326 $13 $257 $2,352 $4,118 Cost for a single healthy retiree in Year 1 is $4,000+ and $8,000+ for a married couple 20

21 And That The Combination of High Inflation Rates And Declining Health Are Driving Costs $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 Healthcare Costs In Retirement If Retire Today Total Medicare Costs Healthy Male Total Medicare Costs Healthy Couple 21

22 The Fact Is That Total Cost Of Healthcare Will Be Unaffordable For Many Clients Tom and Mary's Lifetime Scenario For many retirees Healthcare costs $1,200,000 could consume, or exceed, their income $1,000,000 $949,522 $1,151,088 $800,000 $600,000 $400,000 $200,000 $- Tom and Mary Anderson Healthcare Costs Social Security Income 22

23 So Advisers Are Providing Advice On How To Get These Costs Down Tom and Mary Anderson Age: Both 55 yrs. Health Condition: Healthy Life expectancy: 86 and 89 Will Retire in Florida Planned Retirement Age: 65 Retirement Income: $170,000 -$214,000 Healthcare Coverage: A,B,D, MediGap 23

24 Age 65 (2013) Age 66 (2014) Age 67 (2015) Age 68 (2016) Age 69 (2017) Age 70 (2018) Age 71 (2019) Age 72 (2020) Age 73 (2021) Age 74 (2022) Age 75 (2023) Age 76 (2024) Age 77 (2025) Age 78 (2026) Age 79 (2027) Age 80 (2028) Age 81 (2029) Age 82 (2030) Age 83 (2031) Age 84 (2032) Age 85 (2033) Age 86 (2034) Age 87 (2035) The Adviser Starts By Advising Them To Buy MediGap Insurance To Minimize Risk On OOP s $25,000 $20,000 $15,000 $10,000 $5,000 $0 Total OOP Expenses For Couple With No MediGap Out-of-Pocket Expenses can grow to $20,000+ as they age Married Couple Age 65 Married Couple Age 75 Without MediGap With MediGap Without MediGap With MediGap Annual Premiums $3,530 $6,504 $7,121 $13,548 Annual OOP's $4,802 $2,072 $9,836 $4,132 Total $8,332 $8,576 $16,957 $17,680 24

25 They re Showing Clients The Cost Differences In Various Retirement Destinations Tom and Mary's Healthcare Costs $949,522 $960,000 $940,000 $920,000 $900,000 $880,000 $860,000 $874,803 Ten Least Expensive States For Medicare Costs $840,000 $820,000 Starting Costs Move To South Carolina Instead Of Florida HI VT ME NM Saved $74,719 ID OR SD IA MT ND 25

26 They re Looking At Ways To Help Them Manage Their Income Tom and Mary's Healthcare Costs $1,000,000 $800,000 $600,000 $400,000 $200,000 $- $949,522 Starting Costs $874,803 Move To South Carolina Instead Of Florida $726,131 Keep income to lowest menas testing bracket Managing MAGI* using Indexed Universal Life Policies, Reverse Mortgages, etc. Medicare Means Testing Differences Saved $223,391 *MAGI: Modified Annual Gross Income 26

27 They re Also Suggesting Working A Couple of Years Longer Tom and Mary's Healthcare Costs $1,000,000 $800,000 $600,000 $949,522 $874,803 $726,131 $687,710 Client Options Healthcare Costs Retire At 65 $726,131 $400,000 $200,000 Retire At 66 $714,297 $- Starting Costs Move To South Carolina Instead Of Florida Keep income to lowest means testing bracket Work Until Age 68 Retire At 67 $701,513 Retire At 68 $687,710 Retire At 70 $656,752 Saved $261,812 27

28 HOW ADVISERS ARE HELPING CLIENTS INCREASE INCOME 28

29 They Are Providing Them With The Information To Make Financial Trade-Offs Social Security Optimization 29

30 And They re Helping Them See Social Security As A Source For Funding Their Healthcare Social Security Optimization, Part B is automatically deducted from SS 30

31 The Adviser Has Helped Them Fund The Their Healthcare Costs And Initiates The Action Plan Total Healthcare Costs: $726,131 Healthcare Funding Sources A Single Investment of $70,000 today, or $15,000/yr. for next 5 years 31

32 And Has Saved Them A Significant Amount of Money Healthcare Cost Reduction Initial Plan Modified Plan Better/(Worse) Healthcare Costs $949,522 $726,131 $223,391 Retire At Age 65 Retire at Optimal Age of 70/66 Work Longer Better/(Worse) Healthcare Cost Reduction By Working Longer $726, 131 $685,610 $ 40,521 Social Security Income $1,502,596 $1,648,682 $ 146,086 Additional Saved Work Income $0 $300,000 $300,000 Total Client $709,998 32

33 HOW ADVISERS ARE SCENARIO PLANNING TO PREVENT SHOCKS 33

34 Advisers Can Run Scenarios For Different Life Expectancies Single Male, Age 45, Retired in So. Carolina, $2,000 PIA Excellent Health Good Health Life Expectancy Retirement Date Healthcare Costs $ 976,593 $ 571,763 Social Security Income $ 1,249,310 $ 901,518 Net Income $ 272,717 $ 329,755 34

35 And For Unexpected Illnesses Single Male, Age 45, So. Carolina Type 2 Diabetes Well-Managed Type 2 Diabetes, Poorly Managed Life Expectancy Retirement Date Healthcare Costs $ 389,369 $ 211,703 Social Security Income $ 576,097 $ 257,581 Net Income $ 186,728 $ 45,878 35

36 HOW ADVISERS ARE HELPING CLIENTS ADDRESS LONG-TERM CARE 36

37 A Personalized LTC Report Can Also Be Generated For These Clients 37

38 A Variety of Scenarios Can Be Run For Each Type of Care 38

39 Once Again The Advisor Applies The Client s Social Security Income To Fund This Cost A Single Investment of $45,000 today, or $15,000/yr. for next 3 years $198,497 $850,000 Funding For Assisted Living $162,956 $259,027 $90,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 Social Security:Tom $0 Social Security:Mary Tom's Pension Sale of Beach House Unfunded Annual Social Security Benefits Put Toward Assisted Living $53,455 $54,317 $55,184 $27,605 $27,990 $28,373 $57,399 $58,350 $59,310 $0 $0 $0 84/84 85/85 86/86 - /87 - /88 - /89 Tom Mary 39

40 HOW ADVISERS ARE ATTRACTING NEW CUSTOMERS AND DEEPENING RELATIONSHIPS 40

41 Advisers Are Sending Out Letters and Guides To Clients, Conducting Seminars One-Click Calculator 41

42 Advisers Don t Need To Be Experts Training Sessions and Materials Are Available Ask an Expert Q: What happens to my client s Social Security benefits if she gets remarried? Q: If a single female client has already begun taking her Social Security benefits sat age 62 and then gets married, do her benefits get reset because she is now a spouse? And two, will she get survivor benefits from the marriage? Or is it smarter for her to just live with the guy and both of them continue to collect their respective benefits? 42

43 Summary of Benefits: Advisers Addresses clients immediate needs Perception of Value: More income Lower costs Opens discussion to products not previously considered or desired Actionable results Perception of expertise Niche marketing opportunity 43

44 Summary of Benefits: Enterprise Increased relevance and HH profitability with high-value target audience Platform for thought leadership: How healthcare can be addressed with insurance Healthcare gap in 401K plans Managing healthcare as a key principle of retirement Risk minimization Program is completely customizable Up and running in as little as 1 month Cost effective web-services delivery 44

45 45 QUESTIONS AND DISCUSSIONS

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